Interim Report New Wave Group AB (publ) Q1 JANUARY - MARCH 2010 The period 1 January - 31 March 2010 - Sales amounted to SEK 915 million, which was unchanged compared to previous year in local currencies, but 7% lower in SEK (979 million). - Profit after tax improved by SEK 60.9 million and amounted to SEK 7.6 (-53.3) million. - Earnings per share amounted to SEK 0.11 (-0.81). - Cash flow from operating activities improved by SEK 204.1 million to SEK 65.4 (-138.7) million. - Equity ratio amounted to 41.5 (33.4) %. - Net debt to equity ratio amounted to 93.8 (148.9) %. ROLLING 12 MONTHS - Sales amounted to SEK 4 023 (4 569) million. - EBITDA amounted to SEK 313.6 (366.1) million - Profit after tax amounted to SEK 148.7 (109.6) million. - Cash flow from operating activities amounted to SEK 1 010.4 (-218.0) million. VIEWS ON 2010 The market has so far recovered at the pace we expected, but uncertainty concerning developments in the coming quarters still exists, even if it is less than before. For 2010 we expect a higher turnover and better result than the 2009 outcome - despite some shortages because of low inventories and longer lead times, which primarily affects the second quarter. CEO Comments The first quarter of 2010 is now over and it is apparent that the promo market is much more stable and that our focus on sales is starting to pay off. Although the first quarter is only a minor quarter - and therefore no conclusions for the whole year can be made - it still feels very satisfying that we are off to a good start. Even though 2009 was unusual with large one-off costs in Q1, it is nevertheless true that this first quarter is our second best ever and only the second time we have made a profit during the first quarter, during the period 2005-2010. In addition, it is with continued positive cash flow and further debt and stock reductions. My main concern now, is that our inventories will be too low in certain product areas during the second quarter - which will, more than likely affect sales and earnings slightly negative during this quarter - but we will be well prepared for the second half of the year and are doing all we can right now. We now look forward to growth again and do so with a very strong cash flow and balance sheet behind us. Torsten Jansson Comments SUMMARY OF THE QUARTER The development during this year's first three months shows a stabilisation of markets both in Europe and the U.S. Sales, excluding currency changes, were in line with last year. Out of our larger brands, in terms of sales, Craft continued to increase its sales and Cutter & Buck's sales were in line with last year. Orrefors Kosta Boda had a slightly lower turnover due to weaker export markets. Within our two sales channels, there is still less activity in the promo sector than the retail sector. If we exclude last year's restructuring costs, the gross profit margin is slightly lower than last year. The lower margin is primarily due to the current market condition. The savings measures taken continue to provide results and the reduced cost structure has had an impact on the quarter's result. Efforts to reduce capital tied up and improve cash flow have continued and we have achieved a positive cash flow even in the first quarter. Stock value amounted to SEK 1 587 million and has declined by SEK 38 million since year-end and by SEK 716 million since March 31, 2009. Cash flow from operating activities amounted to SEK 65.4 million, which was a distinct improvement on last year's SEK -138.7 million. Due to the improved cash flow we have reduced our net debt in the quarter by SEK 65 million, and the rolling 12 months by SEK 1 008 million. Net debt amounted to SEK 1 676 (2 684) million and the debt-to-equity ratio was 93.8 (148.9) %. JANUARY - MARCH Sales Sales amounted to SEK 915 (979) million, which was 7% lower than last year. Exchange rates affected sales negatively by SEK 66 million, which means that sales excluding currency changes were in line with last year. The Promo business area reduced its turnover by 10%. The promo market has started to recover but is still weak, primarily in Southern Europe. Sports & Leisure decreased its sales by 8%. Cutter & Buck and the U.S. market indicate a stabilisation and is the same as last year in local currency. Craft increased its sales, primarily in the Nordic countries. Gifts & Home Interior increased its turnover by 10%. The increased turnover during the quarter is attributable to the new establishment of Kosta Boda Art Hotel, which opened in June 2009. Excluding the new establishment there is a decrease which is attributable to lower Orrefors Kosta Boda export sales, primarily in Greece. Sales in the Nordic region increased by 1%, which is attributable to the Norwegian market. The turnover in Central Europe was 10% lower than last year and the decrease is mainly related to Germany and currency changes. Southern Europe decreased by 16% and it is mainly the Italian market that has been weak, but even here the changes in exchange rates have affected sales negatively. North America sales decreased by 15% with a negative currency impact of approximately 15%. Gross profit Gross profit margin was 47.8 (46.1) %. Previous year's gross profit was affected negatively by SEK 25 million (2.5%) due to restructuring costs. Other operating income and other expenses Other operating income decreased by SEK 17.8 million to SEK 5.1 (22.9) million. Other operating income is primarily attributable to operating exchange gains and results should be compared to the line “Other expenses” in which, primarily, the company's foreign exchange losses are reported. Other expenses decreased by SEK 10.8 million and amounted to SEK -3.9 (-14.7) million. The net of the above items was SEK 1.2 (8.3) million and the net profit decrease was mainly due to lower currency gains. Expenses and depreciation External costs decreased by SEK 27.3 million and amounted to SEK -240.4 (-267.7) million. The lower costs are due to savings as well as last year's restructuring costs of SEK 7.1 million. Personnel costs amounted to SEK -167.0 million, which is SEK 64.2 million lower than last year (SEK -231.2 million). The lower costs are due to reductions in personnel as well as last year's restructuring costs of SEK 45.1 million. The exchange rates have affected overall costs positively by SEK 29 million. Depreciation amounted to SEK -14.9 (-18.5) million. Operating margin was 1.9 (-5.9) %, where the improvement is mainly due to savings as well as last year's restructuring costs. Net financial items and taxes Net financial items amounted to SEK -6.6 (-15.5) million. The decrease is due to reduced debt and lower interest rates. The Group's policy is to have a short duration, which means that changing short-term rates quickly affect the Group's net interest. Tax expenses in absolute terms amounted to SEK -2.7 (19.5) million and the tax rate amounted to 26.2 (26.8) %. Result Profit after tax improved by SEK 60.9 million to SEK 7.6 (-53.3) million and earnings per share were SEK 0.11 (-0.81). Previous year's results were affected by restructuring costs of SEK 56.4 million after tax. REPORTING OF BUSINESS AREAS New Wave Group AB divides its operations into three business areas; Promo, Sports & Leisure and Gifts & Home Interior. The Group follows the areas' and brand's sales and profit (EBITDA). The operating segments are based on the Group's operational management. Promo Turnover decreased by 10% to SEK 398 (442) million and profit (EBITDA) decreased by SEK 9.1 million to SEK 13.7 (22.8) million. Lower sales are due to currency changes and a continued weak promo market in Southern Europe. Central Europe has a more stable market and is consistent with the previous year, excluding currency rate changes. The Nordic countries, primarily Norway, are doing better and showing growth. The decrease is related to lower sales volumes. Sports & Leisure Sales dropped by 8% to SEK 380 (413) million and profit (EBITDA) improved by SEK 21.0 million to SEK 40.4 (19.4) million. Most of the decrease in turnover is related to exchange rate fluctuations and mainly the Swedish krona against the U.S. dollar. Cutter & Buck sales in local currency were on par with last year. Craft shows continued increase in sales in both sales channels. The improvement is related to better profit margins, primarily in the U.S. market, where last year's cost-cutting measures now give a good result. Last year's results include restructuring costs of SEK 7.1 million. Gifts & Home Interior Sales increased by 10% to SEK 137 (124) million and profit (EBITDA) improved by SEK 58.7 million to SEK -22.3 (-81.0) million. The higher turnover is primarily related to Kosta Boda Art Hotel which opened in June 2009. Excluding the new establishment, sales decreased by 4%. Orrefors Kosta Boda's export market turnover decreased, primarily in Greece. Sagaform's turnover increased in the retail sales channel, but similarly to the Promo business area has weaker sales within the promo sales channel. Net income increased by SEK 58.7 million, but last year's result includes restructuring costs of SEK 70.1 million. EBITDA excluding restructuring costs decreased which is mainly due to lower sales in Greece and increased marketing efforts in Orrefors Kosta Boda. GEOGRAPHIC ALLOCATION Table of turnover in the regions Scandinavia, Central Europe, Southern Europe, North America and Other Regions is reported on page 14. During the period January-March sales increased by 1% in the Nordic region, where mainly Norway showed better development and growth. In Central Europe the area was negatively affected by currency fluctuations and most countries had a slight increase or were in line with last year. Southern Europe decreased by 16% and had a weaker development, mainly in Italy and Greece. Sales within the area are mainly in the promo market and exchange rate fluctuations have had a negative effect also in this region. Sales in North America decreased by 15% which is a result of a stronger Swedish krona against the U.S. dollar. Sales in local currency were on par with last year. CAPITAL TIED UP During the period capital tied up in stock decreased by SEK 38 million since year-end and by SEK 716 million since March 31, 2009. Total stock value amounted to SEK 1 587 (2 303) million. 2010-03 2009-03 Raw materials 66.3 79.7 Products in progress 31.9 37.4 Goods in transit 68.3 41.4 Merchandise on stock 1 420.3 2 144.9 Total 1 586.8 2 303.4 Efforts to reduce capital tied up in stock have also led to many obsolete items being sold out, which means that the provision for obsolescence has decreased. Provision for obsolescence as of March 31, 2010 amounted to SEK 67 (106) million and is about 5% (approximately 5%) of the reported merchandise on stock. We are now seeing further positive results of our work on capital tied up in stock, as the turnover rate has improved and amounts to 1.2 compared to previous year's 0.9. Accounts receivable decreased by SEK 121 million to SEK 713 (834) million, due to shorter terms of credit and currency fluctuations. The Group continues its work and its priority to reduce working capital. Efforts will continue to concentrate on logistics and inventory. INVESTMENTS, FINANCING AND LIQUIDITY Consolidated cash flow from operations increased by SEK 204 million and amounted to SEK 65 (-139) million. The improvement is related to both an improved operating profit and reduced working capital. The Group's net cash investments totalled SEK -16.0 (-6.3) million. Compared with the same period last year, net debt decreased by SEK 1 008 million and amounted to SEK 1 676 million where the currency changes have reduced debt by SEK 110 million. Net debt relative to equity decreased and amounted to 93.8 (148.9) %. Net debt decreased during the first quarter by SEK 65 million and amounted to SEK 1 676 million. The corresponding quarter last year had an increase of SEK 108 million to SEK 2 684 million. The equity ratio improved by 8.1 percentages and amounted to 41.5 (33.4) %, which is a result of reduced net debt. The Group had SEK 2 825 million in credit lines as of March 31, 2010 and the credit agreement extends through to April 2011. The interest rate is based on the respective currency's base rate and fixed margin. The Group's policy is to have a short duration, which means that changing short-term rates quickly reflect in the Group's net interest. New Wave Group's financing agreement includes a commitment (covenant) regarding the equity ratio and that the total credit ceiling of SEK 2 825 million as of March 31, 2010, shall be amortised down to SEK 2 475 million as of April 30, 2011. PERSONELL AND ORGANISATION In connection with the cost saving measures taken in the Group, the number of full-time employees decreased by 277 as per March 31, 2010 to 2 140 (2 417) of whom 49% were female and 51% were male. Out of the total number of employees 550 (723) work in production. The production that exists within New Wave Group is attributable to Orrefors Kosta Boda, Seger, Dahetra, Toppoint and Cutter & Buck (embroidery). SUBSCRIPTION OPTIONS IN NEW WAVE GROUP AB New Wave Group has four outstanding subscription option programs. In June 2009 a program addressed to senior executives was launched. The option program consists of 1 000 000 stock options and runs until June 2012 with an exercise price of SEK 26.10. The options were subscribed with a premium of SEK 0.21 per option. In July 2008 two programs were launched, one addressing senior executives and one addressing the Board. The option program for senior executives consists of 1 800 000 stock options and runs until June 2011 with an exercise price of SEK 64.05. The options were subscribed with a premium of SEK 1.11 per option. The option program for the Board consists of 200 000 options and runs until June 2013 with an exercise price of SEK 85.40. The options were subscribed with a premium of SEK 0.88 per option. A previous program was issued in July 2007 and consists of 1 653 250 stock options and runs until June 2010 with an exercise price of SEK 102.50. The options were subscribed with a premium of SEK 7 per option. Originally 2 000 000 stock options were issued, of which 346 750 have been cancelled. Premiums received in all above mentioned programs are based on market value. TRANSACTIONS WITH RELATED PARTIES There are leasing agreements with associated companies. The parent company has purchased consulting services from a member of the Board. All transactions are on market terms. VIEWS ON 2010 The market has so far recovered at the pace we expected, but uncertainty concerning developments in the coming quarters still exists, even if it is less than before. For 2010 we expect a higher turnover and better result than the 2009 outcome. PARENT COMPANY Turnover amounted to SEK 45.2 (56.5) million. Profit after financial items was SEK 8.8 (12.6) million. Net borrowings amounted to SEK 1 645 (2 558) million of which SEK 1 376 (2 089) million are related to financing of subsidiaries. Net investments amounted to SEK 4.0 (-0.2) million. Total assets amounted to SEK 3 391 (4 094) million and shareholder's equity to SEK 1 237 (1 079) million. RISKS AND RISK CONTROL New Wave is, with its international operations, regularly exposed to various financial risks. The financial risks are currency, borrowing and interest rate risks, as well as liquidity and credit risks. To minimise these risks impact on earnings, the Group has established a financial policy. For a more detailed description of the Group's risk management please refer to the Annual Report 2008; www.nwg.se. The Group's policy is to have a short duration, which means that changing short-term rates quickly reflect in the Group's net interest income. The Group's reported risks are deemed to be essentially unchanged. Uncertainty in the market's financial risks remain due to the current market conditions and financial crisis. ACCOUNTING PRINCIPLES This report has been prepared according to IAS 34 Interim Report and the Annual Report Law. Report regarding total result has been prepared according to IAS 1 (R) and is applied for the first time September 30, 2009. The comparative year have been recalculated. The interim report for the parent company has been prepared according to Annual Report Law as well as the Swedish Financial Accounting Standards Council's standards RFR 2:2 - Accounting for legal entity. Applied accounting principles are in accordance with the Annual Report for 2008. ANNUAL GENERAL MEETING The Annual General Meeting will take place on the 18th May at 1 pm (CET) at Kosta Boda Art Hotel in Kosta, Sweden. The Annual Report is expected to be available on the 5th May at the company's headquarters in Gothenburg. DIVIDEND The aim is to distribute 30% of the Group's net profit over a business cycle. The Board has decided to propose to the Annual Shareholders meeting a dividend of SEK 0.25 (0.18) per share, equivalent to SEK 16.6 million. The proposal corresponds to 19% of the year's net profit. NOMINATING COMMITTEE The composition of the nominating committee for Board election at the Annual General Meeting is: - Torsten Jansson, CEO and major shareholder - Arne Lööw, representing Fjärde AP-fonden - Kenneth Andersen, representing Home Capital Re-election of Torsten Jansson, Mats Årjes, Göran Härstedt, Christina Bellander, Helle Kruse Nielsen and Anders Dahlvig to the Board of Directors is proposed. Re-election of Anders Dahlvig as Chairman of the Board is proposed. CALENDAR • 18th May, 2010 Annual General Meeting 2010 • 12th August, 2010 Interim report for second quarter • 12th November, 2010 Interim Report for third quarter The Board and the CEO assure that the Interim Report gives a true and fair view of the company and the Group's operations, position and result and describes the material risks and uncertainties that the company and the Group face. Gothenburg, April 22, 2010 New Wave Group AB (publ) Anders Dahlvig Christina Bellander Göran Härstedt Chairman of the Board Member of the Board Member of the Board Helle Kruse Nielsen Mats Årjes Torsten Jansson Member of the Board Member of the Board CEO FOR FURTHER INFORMATION PLEASE CONTACT: CEO Torsten Jansson Phone:+46 (0)31-712 89 01 E-mail: torsten.jansson@nwg.se CFO Lars Jönsson Phone: +46 (0)31-712 89 12 E-mail: lars.jonsson@nwg.se The information in this report is that which New Wave Group is required to disclose under the Securities Exchange and Clearing Operations Act and/or the Financial Instruments Trading Act. Released for publication April 22, 2010 at 7 am (CET).
Interim Report New Wave Group AB (publ) Q1 JANUARY - MARCH 2010
| Source: New Wave Group AB
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